Retailing as an International Industry - Research Paper Example

Retailing as an international industry. By: The paper presents an argument of the ever changingdynamics of retailing and the vital role it plays within the modern economics. The internationalisation of its operations and its sourcing has been key to this new direction especially over the past few decades. Presented in this paper is the changing nature of international retail activities which have brought into focus the need for retailers to expand their operations into virgin and foreign markets. The processes of retailer internationalisation are themselves changing showing the extra benefits derived from these operations. The paper looks into various market entry methods exploring each option with its benefits and drawbacks. Among these entry methods, the Franchise-type agreements turns out to be the most favored entry methods among internationalising retailers; this is mainly because it provides the advantage of rapid international expansion at lower costs and risks to the franchiser. Compared to the other methods, it easily allows for the incorporation of the talent and local knowledge of foreign management. The research paper also looks into the various challenges facing the international retailing processes and operations. It gives the theoretical importance of companies considering these factors before making an entry into the foreign markets with their products. 1.0 Introduction 3 1.1 Background Information 3 1.2 The various market entry methods within international retailing 7 1.3 The research Question 9 1.4 Research objectives; 10 2.0 Existing challenges when making entries into foreign markets 10 2.1 The Economic Factors: 11 2.2 Social and Cultural Factors: 12 2.3 Political and Legal Factors: 13 2.4 Market Attractiveness: 13 2.5 Capability of the Company: 14 3.0 Methodology and Analysis 14 3.1 Data collection methods 14 4.0 Conclusion 16 5.0 work cited 17 1.0 Introduction 1.1 Background Information Over the last few decades, the retailing sector has been restructuring itself throughout the world. Before, retailing had predominantly been a domestic market activity. It has moved from becoming just a domestic sector to an international outfit in its sourcing and operation. It has become undoubtedly become the case that the international expansion activities of retailers have increased significantly. Further forward, from involving the bigger farms, smaller farms have also ventured into this industry. It has integrated newer technologies into its operations out from its traditional technologies. Over this decade, this sector has cased from being a passive and responsive economic sector to an active and vibrant sector that has even directed the changes in the economy of various countries. Retailing has become established at the forefront of economic restructuring. International retailers have been identified as those firms that operate stores they locate within foreign markets. It also includes cross-border shopping, often motivated by a consumer’s desire to acquire goods from an adjacent country which are perhaps scarce or more expensive within their home markets (PRADHAN & PRADHAN 2009, pg 31). One of the notable sectoral changes has been the increase in the internationalisation of retailing activities. The sector that originally consisted only of formalized international activities of sourcing has increased and involved other operations. In the earlier days, there only existed isolated examples and varied attempts by a few firms to open stores outside their individual country but these only comprised a smaller section of the total retailing which heavily remained dominated by domestic firms. The order resulted in retailers firmly being embedded in their local societies. There has however been an increasing intensity of international activity with an increasing number of stores being spread outside the home markets. This has become a widespread strategy both to larger, mid-sized and even small retailers. A key factor favoring this has been the changing nature of the relationship between the prospective retailers and the societies. There has been a significant increase in the scale and geographical extent of international retailing worldwide (PRADHAN & PRADHAN 2009, pg 39). The large retail firms have made several growth strategies with the internationalization of their retailing activities, with an increasing number of mid-sized firms being enjoined. These activities have now become widespread and have in turn raised new management challenges for these firms. Other challenges have included the political and social ones for the national economies acting host to these international retailers. This major shift and the changes in the strategic focus of retailing have raised new conceptual and theoretical issues for study and most research has focused on these areas. Managers began to develop the knowledge, capabilities and skills to facilitate these international expansions. The retailers who had developed a strong presence in their home markets began to sought out new countries into which they could expand to, but remaining firmly in their domestic operations (FERNIE 2005, pg 67). Longer term strategies in the evolution of the management of retail organizations have focused and narrowed down to the convergences of technology applications; both information, communication and marketing technologies facilitated by an effective managerial control over the extended store networks in the several foreign countries. While the use of ICT has made easy the control of these international networks of stores, the advances in marketing have in turn enabled the retailers to control the prerequisite adaptations to their local markets (FERNIE 2005, pg 72). It has been suggested that the shift towards international sourcing by retailers often develops over four stages: The first stage involving domestic sourcing, that is combined with the use of wholesalers who supply products of foreign origin to the retailers. The second stage involves seeing the retailers become more proactive in their international sourcing involvement by commission agents to source foreign products on their behalf. The third stage involves the establishment of foreign buying offices which should act as links between the buyers working within the home market head office and the local suppliers in the foreign markets. The final stage involves creation of a worldwide network of buying offices which supply information on the supplier opportunities; manage the quality of products within their jurisdictions and the transportation of products from their suppliers to the home markets. A range of methods that can be used to facilitate international sourcing could include indirect sourcing from foreign markets through such acts of visiting international trade shows, wholesalers and agents or through direct means, which could be achieved through setting up of international buying offices within the key-souring countries. These buying offices are key necessities to recruit suppliers, oversee production and also to manage the supply of products and their availability. Other means could be through the establishment of international buying groups and networks. These also function to link manufacturers of products, wholesalers, agents and retailers across the national boundaries (VRONTIS & THRASSOU 2013, pg 24). The choice of market entry that an internationalising retailer adopts is usually dependent on the firm’s position in the market, the trading format and their overall international expansion strategy. The retailer’s ultimate method of entry often reflects a firm’s internal competencies and the trading conditions existing within the foreign markets. The selected entry method would indicate the control level a retailer would seek to exert over their foreign operations, their desired degree of flexibility to effectively manage the market conditions faced in the foreign markets and the resources it wishes to allocate for the retail expansion (VRONTIS & THRASSOU 2013, pg 37). 1.2 The various market entry methods within international retailing Internal expansions; this involves the opening of individual stores in foreign markets using similar formats as that of the home countries. This method is usually financed using internal resources. It can be used by firms of any size and experimental openings can be made with minimal risks at relatively lower costs. This method of entry always works to the advantage of the internationalising retailers by giving them full control over their operations and also allows for necessary adaptations based on the experience and the different market conditions experienced. The method also gives room for early terminations in cases it fails to work as projected since there is no other external parties involved in such a decision making process. It is however though associated with particular challenges: due to their sole reliance on the internal resources in funding of the expansion exercise, the process could take a longer time before a significant foreign presence can be experienced and also due to their isolated operation, the exercise could fail to benefit from the local management expertise and knowledge present within the foreign countries. In addition, the process would also need a full locational assessment before investment decisions are made. In cases where the host countries are in distant places from the home markets, the distance could cause a problem in relation to co-ordination and control (KRAFFT & MANTRALA 2010, pg 17). Non-controlling interests; this takes place when a firms acquires what is normally a minority stake in a foreign retailer. This method of entry usually has the advantage of allowing the firms to obtain market intelligence at minimal risks. It also allows the existing management team, with the local knowledge and expertise, to continue to managing the foreign operation. Its major drawback to the investing retailers is that they usually assume a passive position, in that they make investments without the ability to influence the activities of these new investments (KRAFFT & MANTRALA 2010, pg 25). Merger or takeover; this method of entry is often characterized by the acquisition of control over an existing retail business in a foreign country. It allows for an achievement of faster market presence with a management already in place. This makes the cash flow of such firms to be immediate. The method also provides for an opportunity for faster transfer of technology and other relevant forms of technical know-how from the foreign countries to the home market and/or vice versa. Its major drawback is that it can be very costly and difficult to exit from a situation where mistakes had occurred before. In several instances, full and adequate evaluations aren’t achieved and these could end up costing the retailing firms. There is also the question of ready availability of suitable acquisition companies; such companies aren’t readily available to prospective and aspiring international retailers (KRAFFT & MANTRALA 2010, pg 32). Franchise-type agreements; this occurs when the retail formula and the ideas of the franchiser usually from the originating country are replicated, under contract, by the franchisee in the host country. It is one of the most favored entry methods among internationalising retailers as it provides the advantage of rapid international expansion at lower costs and risks to the franchiser. It allows for the incorporation of the talent and local knowledge of foreign management and for the development of locally competitive marketing policy. These agreements also allow for the overcoming of entry barriers especially within the closed markets. Its major drawback is that these retailers are often provided with less opportunities of recruiting suitable franchisees with the necessary knowledge and financial resources (HOWELLS, RAMSAY, WILHELMSSON & KRAFT 2010, pg 47). Joint ventures; this entry method can take various forms including among them: in-store concessions that involves the letting of retail space by a retailer already established in the host country to a foreign retailer; a joint development agreement occurring between two firms entering a host country or an agreement taking place between an entering retailer and an indigenous one. Sometimes partners in a joint venture agreement could buy out each in order to maintain their dominance in the market. These ventures provides for links with firms already in the market and this has an additional advantage of providing new market entrants with the necessary information with respect to the new trading environment. It also provides a platform on which firms could decide to either fully enter the foreign market or exit after a while. The method is however possible if only a trading partner can be found and in the success of such a venture, the benefits would have to be shared, equally. Its success is also dependant on the business acumen of both the parties, in the sense that the successful acts of one partner could be diluted by the incompetencies of the other partner in the agreement (HOWELLS, RAMSAY, WILHELMSSON & KRAFT 2010, pg 55). . 1.3 The research Question There are pertinent issues that have to be considered by the international retailing firms before making an entry into the unknown foreign markets. The research question in this topic would be the determination of these critical factors that have to be considered and how effective they are in determining the success of such firms. Each of the factors has a relative influence on the successes of the retailing firms and they depend on the countries ventured into. 1.4 Research objectives; The research objectives on this subject matter would involve; The determination of the overall factors that influence the entry of the retailing firms into foreign countries and The determination of the key factors that determine the success of the retailing firms when they venture into markets within other developed nations The research studies some of the challenges that have existed and created barriers to the international retailers when entering foreign markets and their relative significance to the ultimate success of the companies. 2.0 Existing challenges when making entries into foreign markets All markets are not equally attractive and not all the companies have the competencies required to pursue all the markets. Companies wishing to open their buying offices and retailing outlets in foreign markets have to consider a host of issues before venturing into the expansion programmes. They have to be wise in selecting of the markets in order to be successful. The issues are considered in the diagram below: 2.1 The Economic Factors: In the retailing industry, not all countries are attractive for all companies. Some markets would not afford the products some companies would be selling and thus the companies should refrain from such areas. There are some however that would readily accept a slightly different version from such products. All these factors must be considered before venturing into a market thus Companies need to deliberate about the real economic potential of a market before they decide to start their operations (KOTABE & HELSEN 2009, pg 71). Despite the cost or sophistication of a product, there would always be some customers who would be willing and able to buy the product in every country, it is however important to study the market base and potential. A company should look deeply into the existing data to find the number of people who can afford to buy its products before making an entry into a market. A team of economists and marketers should be able to study the market for a longer period of time to statistically determine the number of people who would be having enough disposable income to purchase the products the companies are prosing to sell in these markets (KOTABE & HELSEN 2009, pg 83). Besides this, the economic conditions and stability of the prospective markets where a firm intends to run its operations should also be assessed. This can be done by studying a country’s balance of payments situation, the trade patterns, the GDP and the currency stability. These would provide a good indicator of the economic stability of a country being considered as a prospective market (KOTABE & HELSEN 2009, pg 87). 2.2 Social and Cultural Factors: Countries differ with each other on the accounts of the language spoken, language practiced and in many other ways. International retailers should seriously take this into account before venturing into new markets. In many areas, if the host country culture is similar to the entrants culture, then the entrant would already be having valuable information on how to behave in the new market and if not, then most of the retailing strategies would have to be changed. The retail operations, the marketing practices and other business practices would have to be tailored to suit the social and cultural of the host country (ZOU & FU 2011, pg 48). Some retailers would prefer to sell their products to markets that are culturally similar, while others may prefer to look for similarities among the customers across the various countries within which they operate. These differences however will call for a change in strategy for most retailers (ZOU & FU 2011, pg 54). 2.3 Political and Legal Factors: Before an international retailer decides to extend his/her operations into the foreign markets, it is important for the company to know the attitude of the host government and its people towards the foreigners and these operations. A country’s historical record and professed attitude towards foreigner’s operations, properties and products should also be highly taken into account. In areas consisting of nationals of countries who had previously been dominated by foreign powers in the past, citizens are so wary of foreign things. In such circumstances, patience is key and the ability to demonstrate involvement in the national’s well being is important, besides merchandising. Political stability and attitude towards foreigners also matter in major way in encouraging internationalization of retailing activities. Political stability often indicates continuance of policies. The ability to assess the tax structure and the other legal systems and procedures is also important for the retailers before starting operations in the foreign countries. A legal environment where it is easy to implement and enforce policies and contracts is also a major requirement, with little government interference (PRADHAN & PRADHAN 2009, pg 71). 2.4 Market Attractiveness: This can be assessed by evaluating the market potential in terms of the sales that can be made of particular product, the access available to that market and the potential competition in existence within the prospective market. The market potential can be gauged through the study of its macro- environmental factors and the history of the other players in the market. The lack of entrenched competitors and stability in the type and number of competitors can act to be a big pull factor into the foreign markets. 2.5 Capability of the Company: Before deciding to venture into foreign markets, the retail companies should conduct an internal audit of its resources and its capabilities. It should be certain to have clear competitive advantages over its competitors, in terms of the market knowledge, the portfolio of its products, technology, reliable partners and in other aspects to compete decisively. Having people with the experience of the foreign market is also a requirement in order to run successful retail operations in the foreign countries (BHATIA 2008, pg 44). 3.0 Methodology and Analysis The research design would proceed, after getting a pre-understanding and pre-study of the factors, to getting a theoretical framework, studying empirical cases and to the drawing of conclusions. It is important to have a pre-knowledge of the areas and factors being considered as these would reflect the direction of the research. In order to answer the research question adequately, it would be necessary to conduct a qualitative multiple case study of the companies with retail outlets in the foreign markets. They would help in understanding specific cases under particular circumstances 3.1 Data collection methods The two data collection methods involved would be both theoretical and empirical. Theoretical methods uses secondary data usually collected by others with varied purposes while the empirical information is primary and need direct collection to address the specific research question. Theoretical data; theoretical data will be necessary to help in understanding and interpreting the research question, and thus help broaden the base from which scientific conclusion are drawn. They are obtained from books, previous studies, articles and online-data, which should to be reviewed to determine their suitability as resource materials (KRAFFT & MANTRALA 2010, pg 84). Primary data; this information is collected in favor of the research and its objectives and helps in obtaining some of the critical factors in question. In collecting this kind of data, it is important to carefully plan and decide the persons and organizations to be involved to get an accurate picture of the reality. Interviews could be used to obtain the required information through the use postal surveys, personal interviews, telephone interviews and/or email interviews. In order for the study to give reliable propositions, it would be important to select a representative sample from the studied population. This should be done based on the purpose of the research and should reflect what is intended to be measure. Companies with retail outlets in foreign markets or those on the verge of extending their business would provide an adequate sample for the research (KRAFFT & MANTRALA 2010, pg 89). After data collection, the interview questions are analyzed to gain a better understanding of the importance of each of them, and in relation to the theoretical framework formulated. Different retail companies, through scientific research, have been noted to consider different factors In making of their market entry decisions (KOTABE & HELSEN 2009, pg 92). The research is used to help in the identification of key factors considered by most companies of not all. In carrying out the research, it is also important to ensure the material and data received is valid and reliable. Validity; validity of data implies that the data collected should measure the things that they are aimed to be measure. Both the theoretical and empirical concepts should be operationalised in a reliable way. When doing the interviews and generally collecting data, it is important remember and focus on measuring the planned concept. All the interview questions should be well analyzed and operationalised, consist of the same questions in order to get an equal starting-point. Reliability; this point to the trustworthiness and the reliability of the data collected and the conclusions made. This must be considered while conducting the research, so that the findings of the research are independent from the researcher. 4.0 Conclusion Internationalization, from the foregoing has been one of the most important trends in retailing today. It has rapidly increased and metamorphosed into an international industry. This aspect of international retailing process is however not a new practice, and has continued to accelerate in the last two decades. More than 30 years ago, there existed almost predominantly national retail firms with negligible shares in the foreign markets. This however, from the literature, has changed dramatically. Today a lot of retail companies earn a significant share of their revenue in international markets. While at it, it is important for companies eying prospective markets to consider some of the highlighted factors to make it a fruitful and a successful venture. More so, there are key issues including the capability of the respective companies, the economic factors of the foreign countries and the market attractiveness that should be analyzed before these companies decide to expand their territories (ZENTES, MORSCHETT & SCHRAMM-KLEIN 2011, pg 74). 5.0 work cited PRADHAN, S., & PRADHAN, S. (2009). Retailing management: text and cases. New Delhi, India, Tata Mcgraw-Hill Education Pvt. Ltd. FERNIE, J. (2005). International retailing. Bradford, Emerald Group Publishing. VRONTIS, D., & THRASSOU, A. (2013). Innovative Business Practices Prevailing a Turbulent Era. Newcastle upon Tyne, Cambridge Scholars Publishing. http://public.eblib.com/choice/publicfullrecord.aspx?p=1336754. KRAFFT, M., & MANTRALA, M. K. (2010). Retailing in the 21st century: current and future trends. Heidelberg, Springer. HOWELLS, G. G., RAMSAY, I., WILHELMSSON, T., & KRAFT, D. (2010). Handbook of research on international consumer law. Cheltenham, UK, Edward Elgar Pub. http://public.eblib.com/choice/publicfullrecord.aspx?p=615067. KOTABE, M., & HELSEN, K. (2009). The SAGE handbook of international marketing. Los Angeles, SAGE. ZOU, S., & FU, H. (2011). International marketing: emerging markets. Bingley, Emerald Jai. BHATIA, S. C. (2008). Retail management. New Delhi, Atlantic Publishers & Distributors. ZENTES, J., MORSCHETT, D., & SCHRAMM-KLEIN, H. (2011). Strategic retail management text and international cases. Wiesbaden, Gabler. http://dx.doi.org/10.1007/978-3-8349-6740-4. Read More